Tuesday, February 11, 2020

Proposed New HUD Rules Could Mean Serious Problems for Modular Housing

Lately CrossMod has been the talk of everyone in the modular housing industry BUT the new rules recently submitted to HUD could make that discussion a very small problem.


The Manufactured Housing Consensus Committee has submitted regulations allowing HUD manufactured home factories to begin building two story homes.

Yes, you heard that correctly! Two story HUD homes!

HUD proposes to add a definition in § 3282.2 for “attached accessory building or structure,” a term and definition recommended by the MHCC to address features including, but not limited to, attached garages and attached carports. HUD also proposes to amend § 3280.3 by clarifying the requirement that consumer manuals be in accordance with § 3282.207, in addition to general references to 24 CFR parts 3280 and 3282. Through this proposed rulemaking, HUD would also amend § 3280.11(d) by clarifying the location requirement of the certification label to each transportable section of a manufactured home. Specifically, the label must be installed on a permanent part of the exterior of the manufactured home section in a visible location as specified in the approved design. This provides for locating the certification label on transportable sections of multi-story homes that require that the label be located in an area that would cause it to remain visible after all work is completed in finishing the home at the home site.

Not only are they moving forward with that, they are proposing Stair geometry as part of a preemptive code. They will need this for the second floor.

HUD is proposing a new § 3280.114 to define requirements for stairways, landings, handrails, guards and stairway illumination. Without this provision in the federally preemptive Construction and Safety Standards, the inclusion of such features in a manufactured home are subject to the requirements of state or local jurisdictions having authority over the home site, including state and local inspections. By including these requirements in the Construction and Safety Standards, which are consistent with state and local building codes for other housing products and generally used in the design and construction of multi-story manufactured housing, HUD can ensure uniformity in designs and construction and provide cost savings through one uniform standard. Specifically, § 3280.114(a) would define requirements for stairway width, stairway treads and risers, including riser height and tread depth. This paragraph would also define requirements for stairway headroom, winders, spiral stairways, and circular stairways. Paragraph (b) of § 3280.114 would define requirements for stairway landing dimensions and locations of stairway landings.

I’m not finished yet!

Subpart K contains the right to build on zero lot lines meaning that two story manufactured homes can be used for duplexes and townhouses. New rules for roof assemblies are also included.

The following definitions are from Subpart K, found at the very bottom of the proposal:

Attached manufactured home. Two or more adjacent manufactured homes that are structurally independent from foundation to roof and with open space on at least two sides, but which have the appearance of a physical connection (i.e. zero lot line).
Fire separation wall. A wall of an attached manufactured home which is structurally independent of a wall of another attached manufactured home with a fire separation distance of less than three feet.
§ 3280.1003Attached manufactured home unit separation.(a) Separation requirements. Attached manufactured homes must be separated from each other by a fire separation wall of not less than 1-hour fire-resistive rating with exposure from both sides on each attached manufactured home unit when rated based on tests in accordance with ASTM E119-2005, Standard Test Method for Fire Tests of Building Construction and Materials (incorporated by reference, see § 3280.4). Fire resistance rated fire separation wall assemblies must extend from the foundation to the underside of the roof sheathing.

And to make matters worse for modular housing, there is no need for state approvals, the third parties will do all plan review.

CLICK HERE to read the entire proposed regulations

19 comments:

Anonymous said...

Coach, are you kidding me. townhouses built using trailers. NIMBY

Tom Hardiman said...

Thanks for posting Gary. I saw this earlier and reached out to Devin Perry at BSC to discuss. Agreed that it looks problematic and unfair for modular single family and multi family builders. I'm sure we will be submitting comments.

We plan to coordinate a comprehensive industry reply to this. I think that would be more effective than everyone firing off their own replies to HUD. If anyone has specific comments about these rules, they can email them to me at tom@modular.org.

Ken Semler said...

While many on the east coast may not believe it, I first came across two-story manufactured homes in California 6 or 7 years ago. HUD has a process called - Alternative Construction for Manufactured Homes(AC). The purpose of an Alternate Construction (AC) letter is to permit manufacturers to build innovative manufactured homes with the new technology. Homes built under the AC program do not conform to the requirements of the Manufactured Home Construction and Safety Standards, 24 CFR Part 3280 (the Standards). Manufacturers must obtain permission from the Department prior to construction and shipment of homes built under the AC program.

Much of this has been happening already, to me the difference is that the HUD Code has been a pre-emptive code for construction. Now HUD (and the manufacturers that lobby HUD) are making the HUD Code a pre-emptive zoning regulation when you read the whole Federal Register document.

Tom Hardiman said...

Correct Ken. And the proposed new rules write in and allow for the conditions that previously required the alternative construction review - basically giving HUD code mfgs "blanket approval." Meanwhile back in the real /true modular world, no such blanket approvals exist.

Seems like our HUD code cousins are no longer content with the 8-9% of new homes they provide annually and want to change the rules making it easier take the modular home industry's 4%!

For local modular home builders that say a national trade association has no value to them, I point to this issue as a prime example of why you need someone watching your back.

Ken Semler said...

I would promote everyone joining an association! If we are in the industry we may compete against each other, but we also must work together. If we don't, we won't grow the modular building process to what it can be!

If you already belong to the NAHB you are paying the biggest part of the dues already. For about $110 more per year, you can join the NAHB- Building Systems Councils and network and participate in educational events and help show strength as an industry supporter. Contact Devin Perry at dperry@nahb.org

Or, if you want to work with an organization that is focused on modular and will support you with issues that impact you at more of the local and state level then the MHBA may be more for you. For $500 you can get the support you want and support the industry at the same time! Contact Dave Sikora at dave@modular.org

Anonymous said...

Ken Semler, I really don't see a downside for affordable housing. The members of MHBA and the Building Systems Council can't seem to able to build houses the average person can afford which means they are building above average cost housing for select buyers.

If new HUD regulations allow more affordable housing to be built all over the country with less regulation and cost, isn't that a good thing? We've lived in a HUD home for 11 eleven years and have had absolutely no problems.

We have friends that built a new home five years ago and have problems getting the builder to fix problems he caused when he built it for them.

The members of neither organization can build homes that the vast majority of average people can afford. So what is the downside to HUD townhouses and 2 story homes?

Tom Hardiman said...

Anonymous, why does the manufactured housing industry need to change the rules - and the name of their "new class" of product to Cross Mod? The answer is in their own marketing research. Only 9% of respondents answered favorably when asked if they would consider purchasing a manufactured home. But the number jumps to 46% when they use the word "mod" instead.

The HUD code mfgs have done a good job addressing affordable housing and should continue. The should NOT be allowed to intentionally confuse the public and build outside the scope of the manufactured regulations. They get the federal preemption because they build within those regs. Now they want federal preemption via HUD for doing more custom and site work while modular and site built home builders do not have that benefit.

Let's make no mistake about what is happening and who will benefit - three very large companies. And in addition to a more confused consumer, this will crush hundreds of small local home builders.

Anonymous said...

I take it most of you don't know that manufacturers have been building two-story HUD code homes for at least two decades, mostly in California. They have been using what is called an AC (alternate construction) letter. That is where you petition HUD to build a home that goes against one of the 3280 requirements. So this is nothing new other than HUD putting it in the code so manufacturers don't have to go through a 6-9 month process to get that AC letter that expires every 24 months, requires extra inspections and reporting to HUD.

Zero lot line is the exact same thing as the two-story.

You also don't hear the MH manufacturers getting mad at the fact that the state of Ohio is now allowing Modular duplexes to be placed in manufactured housing communities, so the community owners can get double the rent and occupancy. Why is that????

Anonymous said...

Tom, I've been reading this blog for years and it seems that modular companies or your MHBA are not doing much in the way of encouraging or training people to become modular builders.

Modular factories are taking on more big projects simply because the builder base is shrinking. Is anyone addressing that problem besides Express Modular? And they charge for training which means people want to become modular home builders.

The manufactured home industry at least is trying to address the situation affordable housing while you and others simply sit by and complain while it happens.

Thank God I got out of the modular housing business as it's beginning to look like an industry that will never do anything to help itself.

Ken Semler said...

Anonymous,
In my responses and writing, I strongly believe in HUD Code housing. There is definitely a place for it in the United States. But having said that, my issue with the CrossMod is the confusion caused by it. As Tom said, it benefits the manufacturer as much or more than the customer. Giving credit where credit is due it is a genius term that steals legitimacy from modular to justify increasing its price.

Think about what is going to happen. It is being used in conjunction with the MH Choice and MH Advantage program. A manufactured home would have normally sold on land, with all of its features and upgrades for the program, for about $150,000. Now it can sell and appraise for $180,000 as it has access to the appraisals for local site-built homes. Do you think that extra room in the appraisal went to instant equity for the buyer? I am sure the seller bumped their price to take about 1/2 of that as an additional margin.

Now let's go 3-7 years down the road and it's time for that owner to do a move up. They go to sell that home. What if the MH Advantage and MH Choice program aren't there? In fact, there is a good chance the owner of the home thinks they have been living in a modular home the whole time. Now they go to sell it and the home inspector, the real estate agent, the appraiser, and maybe the actual buyer go look under the home and see the frame. Oops! In their mind, its a manufactured home. It isn't displayed on the MLS as a wonderful CrossMod. In fact, especially in the south, I bet it is listed as a doublewide or mobile home.

My concern is that this customer, for all of the reasons we have talked about, is going to have more trouble selling their home. Now that it has a frame the appraiser is going to appraise it as a manufactured home. The new buyer can't get financing at what the current owner owes on it at resale. Is that CrossMod above going to sell for $200,000 in 7 years or is it only going to appraise for $150,000 7 years from now. And the manufacturer sold it for $15,000 more to the customer that needed an "affordable" home. Who was helped with the CrossMod term?

Again, confusion reigns and now we are going to make two stories the norm and multi-family with HUD Code. 2x2 roof structures and minimum requirements will be the norm. I agree affordability is important. Modular struggles just like site-built homes. If HUD worked on eliminating the 26% of the cost that is due to unnecessary regulations for IRC homes, that would have a bigger impact on making housing affordable because it would help 91% of the industry, not merely 9%.

Kam Valgardson said...

Gents,

I see both sides of the argument. Manufactured housing has some powerful lobbyists and they're actively changing the rules in their favor. That's what lobbyists do, and that's what businesses who hire them want. I guarantee that Manufactured housing doesn't care about consequences to the modular industry.
Tom, Ken, your arguments are solid but are directed at the wrong enemy. There's no pie here we need to cut up, let's get a bigger pie! Let's step back and take this opportunity to shift the winds in favor of modular!

The challenges that hold modular housing back and make it more difficult to operate are problems HUD has already solved. State by state regulation vs. national regulation, transportation regs that specify "manufactured" but not modular, and other problems are the real enemy, not the manufactured home guys. Would the formulation of a modular, national code that complicates our lives and drives us nuts be worth the fight?

Can we take this opportunity where the winds of change are blowing to pull together a modular housing wish list and knock down the barriers that make our lives difficult? I think we should be saying "me too, me too" instead of "not them, not them".

Does our industry have enough lobbying umph to make this change? Are we organized, and do we know what we want?

Andy S. said...

I believe everyone should take a deep breath and not over-react to this news. It's one thing for the MH industry to have access to a larger share of the overall housing market. It's quite another for that industry to actually be able to capitalize on the opportunity. A little perspective may help control the angst.

When I was on staff at MHI, we sponsored the Urban Design Project to design and build 1 and 2-story manufactured homes in several urban areas - Washington, DC, Louisville, KY and Wilkinsburg, Pa (suburb of Pittsburgh). The houses looked like they belonged in the neighborhoods and performed very well. But that was the mid-1990's and 25 years later the MH industry is just now waking up to the opportunity.

Here are some realities you have to keep in mind. (1) Building a 2-story manufactured home is no less costly than building a 2-story modular home. In fact, some manufacturers will tell you that because it's not what they do every day, it disrupts an otherwise orderly production line and thus is more costly. (2) 2-story manufactured homes will require the same site preparation and installation as a modular home would - you won't be resting that steel I-beam chassis on cinder block piers. (3) MH manufacturers HATE customization, and if they offer a good/ better/best list of options for the buyer, they prefer to have all those sku's in stock And they HATE having more sku's. (4) The vast majority of manufactured homes in this country are sold by dealers, not Homebuilders. Big difference. From what I've observed, most dealers are only willing to do what's expedient, not what's right. And it shows in the final product. If you're a real homebuilder and you can't sell against that type of competition, then there are probably some other issues at play.

There are certain areas of the country - California is the prime example - where manufactured homes can be erected in any residential area so long as they are compatible with surrounding architecture. But not many states have the same type of enabling legislation which limits the local jurisdiction's ability to lock out manufactured homes. And, realistically, it could be many, many years down the road before we see that all across the country. And if that ever does come to pass in your state and/or locality, then as a licensed homebuilder, you'll have the option to use both manufactured or modular construction for your projects. It's a good bet there won't be much cost difference between the two construction types by then.

I think the challenge to the modular industry (local homebuilders in particular) is to watch for potential damage caused by the acquisition trains that roll through. HUD Code manufacturers will almost certainly try to enter and/or increase their market share of the market rate housing business by acquiring existing modular manufacturers. That makes perfect sense, and can certainly bring some operational and purchasing economies to the modular side of the business - so long as they don't dummy down the modular product so much that it becomes unrecognizable. Acquisition by hedge funds is perhaps even more damaging because once their damage is done, they have no regrets about just walking away.

My hope is that Ken and Devin can make some headway in having NAHB take more of a proactive stance with respect to the modular business. We all need to get behind them and join the industry associations so we can lend a hand in helping to create a better business environment for the future.

Tom Hardiman said...

I agree with a lot of the comments here (and tend to discount anonymous criticisms for what they are).

This is from MHI's own site and their own marketing research:

"CrossMod™ represents the blending of features built on-site to create a new
class of homes for our industry (cross or crossover) and the innovative,
efficient methods used in off-site home construction (mod or modern).

Additionally, MHI’s research found the undefined use of “mod” drew favorable
associations to the terms “modern” and “modular.”

While nine percent of respondents said they would consider purchasing a
manufactured home, 46 percent said they would purchase a CrossMod™."

Does anyone other than me think that this is highly deceiving? Only 9% said they would purchase a manufactured home, but 46% say yes when you add "Mod" to the name because they draw favorable associations with modular. ITS NOT MODULAR!

If your company built a great reputation over years (not saying we have yet). Then a lower cost competitor came in and just started using your name in their marketing, would you be ok with that? This SHOULD matter to all modular home builders as they will be the ones trying to explain to potential customers why their IRC modular home costs more than a CrossMod.

Steve said...

Why can't there be HUD Modular?

I live in Southern California and often pass by a couple of parks that have two story manufactured units. They're hideous. I'm not sure a new code is going to make these ugly ducklings fly off dealers' lots. Nor do I see why any neighborhood group or local jurisdiction would approve the visual pollution.

I'm a stick-built affordable housing developer looking at modular to apply en masse but the disparity between local codes represents the biggest impediment to cost efficiency.

If modular were under the HUD umbrella, for example, and state and local codes were thereby superseded, I imagine modular units could be almost 100% factory-finished, thereby eliminating the need to keep the units' systems open/incomplete for the benefit of local inspectors and their typically quirky code interpretations.

I value NAHB/BSC as an interest group but I don't see them as lobbying heavy weights who can help my business.

Tom Hardiman said...

Steve, there is a HUD code and there is IRC. Modular homes are built to the IRC, just like site built homes.

I'm often asked why we don't we just lobby for a federal modular code. That requires all fifty states and thousands of localities giving up their authority/jurisdiction to inspect/regulate IRC homes and writing a whole new federal code that ensures the quality/durability/resiliancy of IRC but the federal preemption of HUD. And you couldn't just have one national code (it would have to meet CA energy and seismic requirements as well as FL wind zones, NY snow loads, etc).

And simply adding "modular homes" to the HUD code just turns a modular home into a HUD code home.

Steve said...

I think the fact that manufactured is pushing CrossMod at HUD is a great indicator that when there’s an organizing force with a purpose, things can change even at the highest levels.

And I still don’t get why something like HUD modular is not preferable to a bunch of opaque restrictions. The IRC is great at making recommendations, but they have no authority. Besides, that code is implemented at the local level and subject to interpretation. I’ve been fighting this for 20 years in multifamily development.

The HUD Office of Manufactured Housing Programs regulates manufactured-an industry which only produces 80k units on average (Source: Census Bureau data from 2014-2017).

Say modular were 10% of the residential market (for the sake of the exercise), then we’d have something on the order of 175k units being built according to 2019 Census Bureau data.

If the Office of Manufactured Housing Programs can justify its existence based on 80k units, extending its authority to serve a 175k unit modular market seems like a no-brainer-especially given the severity of the situation.

The Census Bureau also states that the US is short 7.3M housing units, with half of that in California. Production of 80k manufactured units in a stagnant market will never make a dent in the need nor is it a threat to an expanding modular market. To meet demand, things need to change to allow for volumetric, cost-efficient modular production.

Case in point: Los Angeles recently issued funds from a $1.2B bond measure with an aim to build 10k affordable units. A 2019 audit found that fewer than 7k units will be built at an average unit cost of $600k. How is that affordable? The audit also found that a disproportionate (30-40%) share of developer’s costs was going to soft costs like permitting.

This seems to dovetail with NAHB’s research which says that regulatory adherence is 30% of a project’s cost. Knowing that local code interpretation is subjective and chaotic, it seems plausible that code harmonization could knock 20% from a unit’s cost. This seems like a good spot to start chipping away at as opposed to trying to influence land, labor, and material line items which are subject to fluctuating market conditions.

I never thought I’d say that regulation would be a good thing for the industry, but if it means shaving 20% off the cost of a unit, then why not?

Tom Hardiman said...

Code harmonization? Steve, I too have been doing this for 20 years. You're correct the ICC has no authority. But the states and localities do have authority. And they are not about to give up their authority (and jobs) to a federal entity. Changing HUD requires changing one set of regulations, which in an of itself is no easy task. Getting all 50 states to give up their authority over IRC homes is a non starter. MHI is pushing "Cross Mod" but again that is NOT a modular home. Its still a HUD home. They just paid a marketing firm a bunch of money to come up with a clever new name that appealed to more home buyers by calling it something it is not. Its still the same code they built to prior, with some "enhancements."

Modular homes = 4% not 10%. And it doesn't matter if someone thinks HUD is preferable - which I happen to think it is not. If more companies WANT to built HUD code homes, that path is there for them now. Fact is, only 9% of the public WANTS a HUD code manufactured home so the demand isn't there. Which, to circle back, is why MHI decided to change its product name to something more appealing.

I agree that things need to change to address housing. I was in a meeting today in Richmond, VA talking to state officials about this very thing.

Kelly Fox said...

People are addressing this problem from only the modular side. The consumer who simply wants a nice new home will find them in a CrossMod at an 'affordable' price that fits their budget. Modular homes can't do that and probably never will unless the industry only builds ranch style homes with no changes and limited options.

We can't build for the affordable market and the sooner we realize that the better. Stop fighting MHI and its members and start figuring out how to promote modular as the step up from a HUD product.

Tom Hardiman said...

Kelly, that's EXACTLY what we are trying to do. It makes it a bit more challenging when MHI literally takes your name and calls their HUD product a "mod" to intentionally (IMO) muddy the waters and confuse the public. The average consumer is going to assume that a "CrossMod" is in fact a modular home when it is not, and I think that was the whole reason MHI went down this road. Only 9% of the public (based on their own marketing research) want a manufactured home but add "mod" to the name and that figure jumps to 46%.

And we have a lot of members that build single story modular ranch homes. Those are the builders that will get hosed by this marketing scheme.